NEW TAX CODE

Others 1083 views 9 replies

RAKESH

Almost CA

2199 Points Joined October 2008

DIRECT TAX CODE BILL, 2009 was unveiled by our Hon. Finance Minister on 12^th August 2009 and has been placed in the public domain for an analytical study and critical review of all its clauses. It seeks to consolidate and amend all the Laws relating to the Direct Taxes. It seeks to bring all Direct Taxes under one code for providing a single tax reporting system. It has been stated that the new code is drafted by taking into account the internationally accepted principles and their best practices to make it at par with world practises and not merely to replace the existing Income Tax Act of 1961.From the point of interest of our readers it has been decided to analyse the provisions of new code with respect to salaried persons, retired people and investors separately. In this process we have to compare the existing provisions of the present I.T.Act1961 to bring out the consequences of the new provisions. First we may consider the Income Tax Rates applicable for various income levels.

At present, income up to Rs.1,60,000/- is basic income level which is not taxable for all Individuals and HUF who are not resident women and senior citizen. As for as resident women are concerned the basic exemption level is Rs.1,90,000/- and for senior citizens Rs.2,40,000. The new code retains the same level of basic exemption for respective categories of tax payers, but the subsequent tax slabs for all of them have been raised as follows:

Type of Assessee

Basic exemption		10% Tax rate upto		20% Tax rate upto		30%Tax rate above
	Present	Proposed	Present	Proposed	Present	Proposed	Present	Proposed

Individuals/ HUF	160000	160000	300000	1000000	500000	2500000	500000	2500000
Resident women	190000	190000	300000	1000000	500000	2500000	500000	2500000
Senior Citizens	240000	240000	300000	1000000	500000	2500000	500000	2500000

Even though everyone may be happy with the above enhanced limits for each tax slabs, the reason why the enhancement has not been given for the basic exemption levels is intriguing. A person with his present income, present tax liability and the expected saving in tax liability are given below:[For the Financial year 2009-10, for a male below the age of 65years and without Educational cess.]

Net Income level P.A.	Present tax	Tax as per new code	saving in tax	% of saving
175,000.00	1,500.00	1,500.00	-	0
250,000.00	9,000.00	9,000.00	-	0
350,000.00	24,000.00	19,000.00	5,000.00	20.83
450,000.00	44,000.00	29,000.00	15,000.00	34.1
550,000.00	69,000.00	39,000.00	30,000.00	43.48
750,000.00	1,29,000	59,000.00	70,000.00	54.26
950,000.00	1,89,000	79,000.00	1,10,000	58.2
1,100,000.00	2,37,000	1,04,000	1,33,000	56.12
1,500,000.00	3,54,000	1,84,000	1,70,000	48.02
2,500,000.00	6,54,000	3,84,000	2,70,000	41.28
3,000,000.00	8,04 000	5,34,000	2,70,000	33.58
5,000,000.00	14,04,000	11,34,000	2,70,000	19.23

From the above table it is clear that the tax rates prescribed by the new code will help saving in taxes only for higher income group and not for lower middle income group. It defeats all canons of taxation which always say that direct taxation is to be based on the principle of “what the traffic can bear” and the norms of taxation should be like “milking the cow and not sucking its blood”. While persons with income ranging from Rs.5,00,000 to Rs.10,00,000 save more than 50% in present tax burden, persons with income of less than Rs.3,00,000 save nothing due to rates. Not only this – they will be facing increased burden of taxes because of withdrawal of many deductions allowed to them from salary income like perquisites, Leave Travel Concessions, Medical Reimbursements etc. the effect of which we will be discussing in our next article. Even persons with income up to Rs.50,00,000 save on taxes nearly 20%. So the new code tax rates are more in favour of the rich then the middle income group.

Our suggestion is that basic exemption should also be raised to Rs.3,00,000/- which is the present ceiling for 10% slab. By this every one will gain including those within 3,00,000/-slab up to the level of tax payable for Rs.3,00,000/-. Further the basic exemption should be linked to “Cost of living index” so that it can be increased every year based on the inflation levels. Most of the time the increase in salary is linked to inflation and it is essential that such an increase should be protected from tax burden. We are not against the rich getting more benefit from tax savings. But middle income group should also get similar benefit.

Replies (9)

Sunil

Trader

2616 Points Joined August 2009

Income Tax Act 1961 survives for 50 years before being replaced by the New DTC.

After 50 years in 2061 the DTC will become as complex and would need to be replaced again.

What really needs to be done is bring uniformity in taxation for all classes of income. As long as agricultural income that consists of a large percentage of individual income is not taxed and you have ultra rich farmers who become just too ultra rich, salaried people are doomed to suffer. An agriculturist can earn is tax free income and also get into the domain of business and salary. A salaried person cannot become an agriculturist. Could Amitabh Bachan with all his wealth become an agriculturist for sake of buying property?

There is a will to follow rigid international practice in levy and collection on tax but the political will to bring equality is just non existent. As long as this is the situation, the new DTC is doomed to failure and what we are going to land up with is IT Act 61 in a new Avtar that will continue to be amended. right now with all the amendments the Income tax act 1961 is in thousands of pages. By this move, for the first couple of years the number of pages will become less and the act will be a little easy to read. 50 years down the line we will be in the same situation.

The need of the hour is that no income should be exempt, including agriculture.

Sunil

Trader

2616 Points Joined August 2009

Sorry, I have not read the New DTC in detail and therefore I am not aware if agricultural income suffers the taxation in the new DTC.

CA. Shwetank Vats

Chartered Accountant

653 Points Joined May 2008

Yes, I am 100% agree with Mr.Rakesh, more benefit to high income group instead of low income group.

Please see the my sharing file, which was uploading by me on 31-08-09 as per below :-/share_files/files_display.asp?files_id=17216

santhosh

Student

1174 Points Joined July 2008

agreed with rakesh.... tax makers making poor to poorer and rich to richer....

Guest

Thanks all for sharing............Truly new DTC is more in favour of high income groups. What will u say abt the comment made by Dept of Finance "The thrust of the code is to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate level of taxation and expanding the tax base"?

https://finmin.nic.in/dtcode/Discussion%20Paper.pdf

Max Payne

employed

2574 Points Joined May 2008

Originally posted by :Poonam Thanvi
"	Thanks all for sharing............Truly new DTC is more in favour of high income groups. What will u say abt the comment made by Dept of Finance "The thrust of the code is to improve the efficiency and equity of our tax system by eliminating distortions in the tax structure, introducing moderate level of taxation and expanding the tax base"? https://finmin.nic.in/dtcode/Discussion%20Paper.pdf	"

Perhaps it is moderate, but its irrational - all the deductions are being taken away, and the only benefit for the uninfrmed voter is increase in slab rate.

Even now, when the surcharge for individuals was removed, there was not a sound from any corner. Did that help aam admi? No... We are heading either to Utopian India or Dystopia.

If anyone noticed, on page 32 of the proposed code,

11.4 Any amount exceeding Rs.20,000 taken or accepted or repaid as loan or deposit

otherwise than by account payee cheque or draft shall be deemed to be income, and included

under this head and taxed accordingly.

he has taken disallowance under 40A(3), and put is as an income from other sources - was this even necessary? He is harassing the salaried man and the retired pensioner. Can u give give a cheque in a hospital to meet ur treatment expenses or will u have to take DDs and expecting expenses? what about wedding expenses? Repyment of advance will also be taxable under this provision!

My biggest fear, is that what starts off like simple service tax of just 3 services, income tax also will later become draconian and start harassing the honest tax payer. Govt please shift focus towards indirect taxes. Where is your GST Roadmap?

sunali

Article & Student

28 Points Joined September 2009

will the new service tax rate of 10.3% be followed in nov 2009 .or is it same 12.3% please tell and clear my doubts...

CA sakshi agarwal

graduate

52 Points Joined July 2009

Originally posted by :Sunil
"	Income Tax Act 1961 survives for 50 years before being replaced by the New DTC. After 50 years in 2061 the DTC will become as complex and would need to be replaced again. What really needs to be done is bring uniformity in taxation for all classes of income. As long as agricultural income that consists of a large percentage of individual income is not taxed and you have ultra rich farmers who become just too ultra rich, salaried people are doomed to suffer. An agriculturist can earn is tax free income and also get into the domain of business and salary. A salaried person cannot become an agriculturist. Could Amitabh Bachan with all his wealth become an agriculturist for sake of buying property? There is a will to follow rigid international practice in levy and collection on tax but the political will to bring equality is just non existent. As long as this is the situation, the new DTC is doomed to failure and what we are going to land up with is IT Act 61 in a new Avtar that will continue to be amended. right now with all the amendments the Income tax act 1961 is in thousands of pages. By this move, for the first couple of years the number of pages will become less and the act will be a little easy to read. 50 years down the line we will be in the same situation. The need of the hour is that no income should be exempt, including agriculture.	"